Common law defines a company as a “legal person,” separate from its members, that can exist beyond their lifetimes. Companies are moreover, it is a combined political, social, economic, and legal institution.
The word “company” comes from Latin “com” (together) and “panis” (bread), initially referring to meal-sharing groups. Now, a company is a legal entity formed to conduct business for profit or specific goals. Section 2(20) of the Companies Act, 2013 defines it as a company incorporated under this or prior company law.
CHARACTERISTIC OF A COMPANY UNDER LAW
- Artificial Legal Person
- Separate Legal Entity
- Limited Liability
- Perpetual Succession
- Transferability of Shares
- Common Seal (Optional)
- Representative Management
- Voluntary Association for Profit
- Capacity to sue and be sued
- Company, not a citizen
KINDS OF COMPANIES
- Unlimited Companies
The Act primarily aims to allow businesses to trade with limited liability. To that end, unlimited companies must specify member numbers and, if applicable, share capital in their articles. Indeed, Section 2(92) defines unlimited companies as those without member liability limits. Consequently, these are uncommon today.
- Guarantee Companies
A company limited by guarantee (CLG) restricts members’ liability to the amount they pledge to contribute if the company is wound up, as stated in the memorandum. While a CLG doesn’t require share capital, those with it face the same capital reduction restrictions as companies limited by shares. Moreover, CLGs cannot purchase their own shares.
- Public Companies
A Public company means a company which is not a Private company. Public company defined under Section 2(71), as not a private company, whose shares are exchanged in an open trade market. Thus a public company may be said to be an association consisting of not less than seven members, which is registered under the Act. Case Shyam Nandan Prasad v State of Bihar
- Private Companies
Section 2(68) of the Companies Act, 2013 defines a ‘Private Company’. A private company means a company which:-
- Restricts the right to transfer its shares;
- Limits the number of members to fifty;
- Prohibits any invitation to the public to subscribe for any securities;
- Include One Person Company (OPC), small companies.
- Private companies are not taken into consideration while calculating the maximum limit of 20 companies for audit.
To convert to a public company, a private company can amend its Articles via a special resolution, removing all private company restrictions. Subsequently, the company must inform the Registrar of the conversion and submit a Prospectus copy within a prescribed timeframe.
- One Person Company
Section 2(62) of the Act, defines one person company as a company that is to be incorporated with one person as a member. Whereas Section 3 of the act, specifies certain exceptions that are to be followed for making registration of a one person company. For example- AVV AD Avenue (OPC) Pvt. Ltd. Company,etc.
- Small Companies
A small company is a non-public entity meeting two criteria. First, its paid-up capital must be up to ₹50 lakhs, potentially rising to a prescribed amount not exceeding ₹5 crores. Additionally, its annual turnover, based on the latest profit and loss account, must not exceed ₹2 crores, possibly increasing to a prescribed amount under ₹20 crores.
- Holding and Subsidiary Companies
Holding and subsidiary companies are relative terms. When one company controls another, it’s the “holding company,” and the controlled entity is the “subsidiary.” A company is a holding company if it controls the other’s board composition. Additionally, a holding company possesses the majority of shares, meaning it controls over half of the voting power. Furthermore, if the holding company’s subsidiary has its own subsidiary, it becomes a subsidiary of the original holding company.
- Government Companies
A company qualifies as a Government company when the Central Government, any State Government, or a combination of both, holds no less than 50% of its paid-up share capital. This definition also includes subsidiaries of Government companies.
- Appointment of Auditor and conduct of Audit – The Central Government, advised by the Comptroller and Auditor General of India, appoints or re-appoints the auditor of a Government company.
- Audit and Annual report to be placed before the Parliament and State Legislature – The Central Government must present the annual report on the Companies Act’s administration, along with the audit report and any CAG comments, to both Houses of Parliament. This presentation should occur within three months of the General Meeting.
- Government Companies are exempt from the applicability of certain provision of the Act – The Act empowers the Central Government to exempt Government Companies from certain provisions, or to modify them, via official Gazette notification.
- Foreign Companies
Foreign Company means any company or body corporate incorporated in India which:-
(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
Sections 380-392 of the Act govern foreign companies. Failure to comply results in contract liability. Also, they must display their name and origin in both English and the local language. Finally, member liability is limited.
- Multinational Companies
Multinational companies (MNCs) manage production and services across countries; they’re also called international companies.In 1991, India introduced its MNC and Industrial Policy to tackle globalization-related challenges. Therefore, the government was encouraged to adjust fiscal policies and lower tariffs to encourage MNCs.
Conclusion
The Companies Act, 2013 prioritizes self-regulation over government control in the capital market. It clarifies responsibilities for management, directors, and promoters, establishing a code of conduct not found in the 1956 Act. Therefore, independent directors must now bear responsibilities and be accountable for board decisions.
If incase you need any legal assistance you can now try our AI Legal Advisor.
